what is this option trading? Even today many people do not know the basic concept. So you must have heard that someone bought Airlines, bought Tata, bought ITC, bought Bajaj, bought TVS Motor, bought MRF, bought Pedal Lite, bought a lot of stocks. So stocks always increase. You tell me that stocks always increase because if you have bought, then you will only get profit when the stock goes up. But you must have also heard that the stock market has been corrected, the correction has come, it will be that the stock market has sunk, it has broken, the stocks have broken, so what at that time?
So you feel that there is a loss heredity can happen that if we have invested money, then we can also have a loss. So what is the protection of this loss? It is very important to understand its protection. So what are the options? When people talk, why did the options come? First of all, they came for hedging. Today you and I will buy a stock of 1 lakh,2 lakhs, 3 lakhs, 10 lakhs, 1 crore, 2 crores, 10 crores, but our limit will come after that. But you think how many people like us who invest through SIPs? You are doing SIPs continuously every month. So there are hedge funds in the market that are managing people’s money. Now why do we call hedge funds a hedge fund?
Because they are putting money in the market, but they keep hedging against your money. Correct. That if the market has sunk, it has broken, someday it will happen that someday the market will break, it will crash. So that you people do not suffer in the crash situation. So what is hedging? Let’s understand it today. If a person trades, then you have two options in the options.
There is a call option and a put option. If we have an option in both, then before explaining this, call is called CE, put is called PE, call European, put European, because we deal in European contracts, we do not deal in American contracts. So we have European options. So you buy a call, who can call? So any stock that trades info, what is F&O? F&O means future and options.
So now we are talking about options, but there is something called futures also. What is futures? That you get leverage. Now all these things that I am saying, maybe you are not understanding someone at once. So leverage means, now I have to explain leverage once, taking a little time. See where does it start from? It starts from here that we are basically interested in buying stocks. You simply want to buy. You have 1 lakh rupees. You have 1 lakh rupees, you want to buy, you went and bought a stock of 1 lakh rupees. Now let’s assume that the stock increased by 5% in a day.
Show much profit will be there, Riyansh? 5,000.5,000 will be the profit. We are removing charges and all. Weave a profit of 5,000. 5% has increased. But Riyansh says that what will happen to me with 5,000? I have1 lakh rupees, but I need 25,000 rupees. How will 25,000 come? So if it only increased by 5%, then you will say that this is not possible.
If a stock increases by 5%and1 lakh rupees will be bought, then 5,000 will come, not 25,000. But there is an option. So before going to the options, let’s understand the future option. So what do you say to your broker? Give me the future. So what will he say in the future? Okay, I am ready to give you 3 times or 5 times leverage.
What does leverage mean? You will give me a margin of 1 lakh. What is the margin? The money you keep with your broker. Now what happened to the broker? If you have opened your Demas account somewhere, then you put funds in the DEMAT account. The fund that is used is used like a margin. Now you have a Demas account. So if you have a DEMAT account, then what will you write there? For example, you write Reliance, then you will write FUT in front of Reliance.
So Reliance has a future. Now in the future, I am explaining the future before explaining the options because many people will hear F and O at the same time and they will not understand the future. So in the future, you have 3 types of expiry. One is the current month’s expiry, one is the next month’s expiry, and one is the far month’s expiry. So for example, the blog I am making today is in May. So if you write Reliance FUT, then you will see an expiry of May an expiry of June, an expiry of July. So as soon as you go and buy the future, suppose you bought the future in May, so what does expiry mean? You said that the future will also expire. This is a contract.
So whenever we do a contract, we have a date. When will it end? So the date of its future is the last Thursday of the month. So the last Thursday in May, the last Thursday in June, the last Thursday in July, our future contract will expire. Now this also means that if 5% has increased today and I think it can increase tomorrow as well, 2% 3% can also increase.
So it is not necessary that I sell it today. I can also carry it. Now what is carry? Because if I am telling you to carry here, because this thing comes before the future, intraday. One is to buy the stock, which we call taking the delivery of the stock. But you must have heard that many people are intraday traders, they trade intraday.
So in intraday, they basically do 3 things. One is they trade direct intraday, second they trade in futures, third they trade in options. So what is intraday? Intraday means you have to buy the same day and sell the same day. But how will you get intraday? When you go to buy any stock, you simply go to buy Reliance for 1 lakh rupees, your broker gives you the option that you have to buy this stocking delivery or intraday. As soon as you go to buy in intraday, it will give you leverage.
It will give you leverage depending on the broker. Now here comes one more thing in intraday, if you feel that this stock can fall by 5% today. If you saw yesterday, HDFC Bank fell by more than 5%. Now suppose your analysis was saying that HDFC Bank can fall and can fall by 5% and you had 1 lakh rupees, but you had to earn 25000. So what did you do here? You traded in intraday, you traded for 1 lakh rupees. Now if you trade for 1 lakh rupees and we get leverage of 5 times, then how much money will we get in Reliance if 5% breaks? 5 times5 lakhs of 1 lakh, we will get 5% in that, it will be 25000.
It will be 25000, it will be fun. But one more thing, if you turn out to be wrong, then the loss will also be on 5 lakhs. Correct. This happened in the same futures, but what happened in futures, you don’t have to cut the deal on the same day, you have time until the expiry and after the expiry, people’s positions are roll over, so it is called roll over. Means people take it ahead, they feel that it is going on now. Suppose the market is going in uptrend, so they feel that itis going in futures, but the May contract is expiring, let’s go in June. So this is known as roll over in the position. Let’s move forward.
Now we come to our options. Now if you go to buy futures, then you think more margin. Thesis a simple thing, you can check the margin. If you simply call or put to buy, then it takes very little margin. Let me tell you an example. In today’s rate, we are giving a hypothetical example. Nifty is running at 18200 and you go to take the call option of Nifty, then you see that you are getting 100 rupees. One important thing here is that when you are going to buy options or you are going to buy futures, in intraday it is not necessary, but if you buy futures and options, then it is always bought in lots.
What does not mean? You will not get a share. So if Nifty is at 18200, and now we will understand the concept of add the money, in the money, out of the money, but if it is at 18000, then it is called add the money. Where there is a market, if you are taking a call or put of it, then it is called add the money. So you see 100 rupees of add the money. So how much is the lot of Nifty?50. So you need a minimum of 5000 rupees. But you gave 5000 rupees, you understand, you gave 5000 rupees, this is a highly leveraged product. What does this mean? Riyansh, you tell people.
From here you understand simply that leverage will be the first thing. Leverage does not mean that if you have1 lakh rupees in your DEMAT account, then they give you 5 lakhs. No. What they do is they give you a product with a margin in that product and you can buy more of it. Your money is the same. So what happened here? We bought the call. Suppose it is of 50 rupees. What happened in this is that in the future, you will get 1.5 lakhs,1.8 lakhs, you will get 2 lakhs in cash.
But here you have bought the call of adding the money. You have almost, because 0.5 delta, etc. you will understand later. Now Greeks will understand. But almost you have bought the equivalent to that,5000 rupees. Right.be bought. If you are buying a share, then its lot is 400, or 500, so 500 shares will be bought. The profit on 500 shares will be yours. You could have taken So if 50 is written here, 50 is your lot, so 50 quantities will lakhs, but normally you will get the same profit in 5-10 thousand.
That I bought 50 shares, but there was not much profit, it will be less or more, so we will explain later. So delta you need to understand more. So you bought from 5000, now I will give you an example, for now I am telling you the example, at the money there is delta of 0.5, so just apply this much, if 1 rupee Nifty increases, then the premium of 50 rupees will increase. So this means that if Nifty goes from 18200 to 18400, Means if 200 points increase, then my premium will increase by100 points. And how much did I buy? I bought for 100 rupees. So how much will my 100-rupee thing be?
200. So how much will my 5000 increase at 200 points of Nifty? It is 10,000. Double. If Nifty increases by 200 points, which you see in intraday, it happens many times that Nifty increases by 200 points, it does not increase by 200 points daily, but yes, a move of200 points can come in a day. But the main thing here is that your 5000 capital has doubled. So this is the main concept here. So you are understanding this leverage, what did you get? Just by increasing 200 points, the money doubled. And this can happen in a day, but it is highly leveraged.
You thought the market will go up, but the market will not go according to your thinking. Because if the analysis is wrong, that’s why we were teaching you the analysis first. Do the analysis first. Because now this is the thing that I have done everything, how will the money come? So the money will come by trading, but if you trade directly and do nothing, then you will lose. So if the market falls instead of 18200 here, then there can be a loss. And you will have a leveraged loss
Because just imagine thesis your capital. If you lose this here, then you can lose this in highly leveraged. So we should tell both sides that this profit is also very good if your analysis is good. If you are wrong in the analysis, then it is highly leveraged. You will also have a loss according to that as well as profit. So now what do you see that someone has earned 5 lakhs? If you put in 5 lakhs, then someone has earned 5 lakhs. So it is simply a game of quantity. You were trading from 5000 to 10,000. Someone will have 5 lakhs, 10 lakhs, someone will have 1 crore,2 crores.
So if the market moves in your direction, then delta, that’s why I told you a little. Because as soon as you buy up or down, the market is at 18200, but you have done 18400, then there is less delta. There, your premium will not increase by half a rupee from 1rupee. Now put option is similar. Now many people love put options alto. They think that money is made in put options.
Why? Because when the market crashes, it falls very fast. What will happen if it falls fast? If the speed is fast, then the speed of the premium will also increase fast. So the same thing is that you bought an 18200 put option for 100 rupees and the market fell by 200 points from here. So if you had put 5000 into 50, then how much will it be?
5000, it will also be 10,000 if the market fell by 200 points from here. Because you bought this at money. Now we are taking the calculation of delta to 0.5. So it is not a matter of 5000, someone may have more capital, and someone may have less, but now let’s come to the fun part.
What is the fun part? Someone bought it, someone sold it. If you have bought the call option, then what happens in the market, option trading is a zero-sum game. If money goes to your pocket, it will come out of someone’s pocket and if money is coming to someone’s pocket, then you understand that someone is suffering a loss. So the day you are making a profit, someone has suffered a loss.
So you have to understand that it is a zero-sum game. There are buyers and sellers in the market. You bought when you thought the market would increase, but someone thought the market would fall. So the seller thought the market would fall, so he sold the call option. The game of selling, I am telling you clearly, there are many people who are beginners, they may not understand at once, but if you want to make money, then you have to learn this.
You cannot say that I am just a buyer or I am just a seller. You become an opportunist. Sometimes you will get an opportunity, you will feel that a volatile move can come from here and in that volatile move, you can make a good profit in buying. So you will buy and you feel that the market is sideways, there is a range-bound market. In the range-bound market, you will make money by applying the strategy of selling. You have to make money. You don’t care if you make money by buying or selling. Because the color of money is the same. You don’t have to see that money is different.
Money is made by buying and selling. You have to understand which strategy will fit now. Correct. Like I have done a lot of option selling, but whenever feel that I am getting a little opportunity of option buying in the market, then I will buy options. You can say that yes, I have earned 80% money by selling, but I have also earned 20%by buying. So you have to think that when you feel the move, you jump straight into buying. When you are sideways, you can play a little strategy in option selling, but do not miss the opportunity of buying. The process is the same.
As I gave an example that you can have 5 lakhs and 10 lakhs. In option selling, that process is slow, but you will get money there too. So do both. I started playing cricket recently. When we used to play street cricket, we used to hit every ball straight. We didn’t have to hit here and there. Hitting is also straight and if you go to every ball, then it goes to the fourth or sixth.
But what used to happen was that one or two shots would be hit and they would get out very quickly. So what did the coach tell me now? First play by sticking. I have learned a very important concept in cricket, which I found very important in life that the more you walk in cricket and play while bending, the longer you will play.
What do these people do? If they earn money from the market, then they get ego. Their backbone becomes straight. You see, any cricketer whose backbone is straight, he can hit good shots. It is necessary to walk while bending. It is also necessary to walk while bending in the market and what I understood in the second concept here is that timing is very important, which I found to be a great concept in cricket and the stock market.
One is timing, because the timing shot makes good runs. The second thing is not to hit a six on every ball. If you are able to judge the ball, then it is not necessary to hit a shot. You can also do defense and drive. What does this mean? This means that the six-ball will come. Some or the other bowler will put the wrong ball at some point.
He will put it up and will also give a full toss. You buy omit. You will earn money by buying out of the money at that time. You can do anything. Out of the money, in the money, whatever you do, but hit four or six less. You are ticking. You have to hit a hundred. Hitting a century means that you don’t have to hit six sixes on the first day. You can’t do it with a tuk-tuk. You will keep doing this. You are eating the ball. It is a waste of time. You have to make a balance between four and six and tuk-tuk. When the balance is made, the hundred will be automatic.
You must also hear that many times people say that running between the wickets is doing very well. They are playing good cricket. What does this mean? When we are making money slowly, we are making money. This does not mean that we have to earn lakhs of crores of rupees every day. It is not possible. If someone tells me that I earn this much every day, it is not possible. The market does not give opportunities every day. So just learn what to do when money will be made. I believe this. Now you can tell me what you believe in the comments.
Similarly, I told you about put options. So when do people buy put options? When they think the market will fall. And who sells put options? When they think the market will go up. So you have to understand the concept of buyer and seller.
Now you will say that for buy and sell, no. Those are strategies. You are making four lakhs. What does four lakhs mean? Look, I just didn’t tell you the concept of add the money, in the money, out of the money. I will give you a simple example. So here we have opened the option chain. Now you can see the option chain on the NSE website. Why NSE website? Because the Nifty option chain that I have opened, Nifty is a product of NSE. Similarly, Sensex is a product of BSE. Bank Nifty is a product of NSE. Now BSE is also bringing its banking index. So you Cando options in both.
Now if you watch Sensex from May 15, you will get the options of Sensex live. You can trade in it. But the concept of trading will remain the same. In the money, at the money, out of the money, the concepts of the options will remain the same. So let’s continue from here’s we understand it in simple language, in the right-hand side, you have put. We have understood the concept of buying and selling. Here on the left, you have calls. You understand it simply. You buy up the call.
We buy up the call when we feel that there is going to be a higher level in the market. So you understand that if we buy 18,200 or 18,300 in the market if the market has not reached there yet, then all these options mean out of the money are those options which will come the market will reach there will come out of the money.
All those options are called out of the money on the call side where the market has already reached like you can see here that the market is between 1850 and 1800 means the market has reached here where the market has reached is called at the money and the area which the market has already crossed like all the call options below this all these where the market has reached is called in the money you can do the opposite of this in Putin but also go with the thought of buying that when do I buy put when the market will falls if the market is running at 1800and I have bought put of 1700-900what will be called in put?
Out of the money because the market will have to come at 1700-900then it will reach at the money simple you can understand that if you see from the concept of buying then it will be easier for you there is no difference in call and put what will be called in the money? Where the market has already entered like the market is running below 1800-200it is running below 300 and at the money, both are same in at the money people get confused because here there are double strikes because there is a division of 50 means there is a division of 1850-18100 in nifty.
so in this what happens suppose the market is at 1865so sometimes you see both at the money in many places in many places it will be 1800in many places it will be 1850it’s vendor details because sometimes we buy data from a vendors it is for confusion and that is 100% because it is 18000 pass its pass it means it has gone above 50but it is around 50and then it is around 100so you have to understand that if it is around that then you can consider both at the money here just to remind you have told you before.
